HRAs & FSAs – A Comparison & Contrast

HRA vs. FSA – Which is Right for Your Company?

A competitive benefits plan can do wonders for your employee retention rate.  57% of workers said that having a comprehensive overall benefits package will play an important role in deciding to leave a current employer. A great benefits package offers healthcare options such as tax-free savings that employees can use to pay for medical expenses such as through an HRA or FSA.

As an employer, choosing between an HRA vs. FSA is an important decision that can impact your company’s finances and employee retention rate. Use Employer Support Services’ HRA vs. FSA comparison guide to choose the best option for your company and employees.


HRA vs. FSA – What’s the Difference?Employees discussing benefits with HRAs and FSAs

Health Reimbursement Accounts (HRAs) and Flexible Spending Accounts (FSAs) have several primary differences – mainly their funding and conditions. That stated, both accounts are exempt from Federal Income Tax Withholding, Social Security taxes, and Medicare taxes under Section 125 of pre-tax benefits.

HRA – Health Reimbursement Account

Unlike Health Savings Accounts (HSAs), HRAs do not require employees to be enrolled in a high-deductible health plan. They stand alone as a separate account from which employees can draw funds to pay for eligible healthcare costs that may not be covered by other plans or insurance.

One main difference when looking at HRA vs. FSA is that employers own HRAs, and only employers can contribute to the funds.

[Related: Benefits Of HSAs + Updated HSA Limits For 2020]

FSA – Flexible Spending Accounts

FSAs are also employer-owned accounts and do not require a high deductible health plan. However, both employees and employers can contribute to the available funds in the FSA account that employees can draw from for eligible medical expenses. When comparing HRAs vs. FSAs, who can contribute to the account will matter to you and your employees.


Diving Deeper into HRAs vs. FSAs – How Much Control Do You Want?

FSAs – The Details

FSAs are provided to employees by employers as an additional healthcare savings account. When deciding between HRAs vs. FSAs, it’s good to know that with FSAs, employees can contribute up to $2,750 per year to the account, which they can then use to pay for qualifying medical, dental, and vision costs for themselves, their spouse, and eligible dependents. Employers can also decide to contribute, and any contributions by the employer do not count against the annual limit.

Historically, FSA funds must be used by the end of the year, and any remaining money left within the FSA that has not been used would be forfeited back to the employer. Employers had the option to allow up to $550 of unused funds to roll over into the new year.

However, in December 2020, the Consolidated Appropriations Act was passed, which temporarily extended the expiration of all 2020 funds until December 2021. The Act was intended to provide employees with financial relief during the pandemic. Employers can choose to carry over funds or grant a 12-month grace period for the funds.

The Three Types of FSAs

  • Health Care

This account’s funds can be used to pay for out-of-pocket medical expenses, including deductibles, co-payments, prescriptions, bandages, and more. An employee can use the funds for themself, their spouse, and dependents.

  • Dependent Care

This type of account is helpful for working parents who need to pay for child care in order to work. The funds can be used to reimburse the cost of a nanny, daycare, preschool, summer camp, adult daycare, and more. The annual limit for this account is $5,000 for married couples or $2,500 for individuals.

  • Limited Purpose

It can be used to pay for varying dental and vision care products and services such as co-payments, deductibles, dentures, prescription eyeglasses, and more. This account can be used for the employee, their spouse, and dependents.


HRAs – The DetailsEmployer discussing HRAs and FSAs

HRAs are a healthcare savings account provided and funded by the employer. When comparing HRAs vs. FSAs, it’s good to remember that HRAs offer greater control for employers. Employers can choose the amount and which medical, dental, and vision expenses are eligible for reimbursement through the funds they provide into the account. The account can be used for expenses for the employee, their spouse, and dependents.

Another feature to consider when deciding between HRA vs. FSA is that employers can control how much money rolls over into the next year in an HRA if unused by the employee. Tax deductions are available for employers for any reimbursements they make for the employee with an HRA.

[Related: Planning For 2021 Benefits Changes In The COVID-19 Era]


FSA vs. HRA – Which is Right for You?

With a supplemental tax-free health account, you can increase your employee retention rate by providing a benefit they rely on and appreciate. When creating a competitive benefits plan, you need to consider which design and administration requirements fit your business, as well as your finances and current benefit offerings.

At Employer Support Services, we can help you pick between an HRA vs. FSA based on your business and goals. With ESS on your side administering the benefit, you can have peace of mind knowing all documentation is in order and accounted for on both your side and the employees’. Contact us today for HRA vs. FSA consultation, application, and administration services in HRA and FSA plans – call 225-364-3000.

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